Saving in cash may be totally personally rational, but from a macroeconomic perspective, from which the government must view this activity, cash savings in banks do nothing to aid economic activity in the economy.
Investing in shares is much the same. Almost no company now issues shares to support its trading activity. Any new shares are issued in mergers and acquisitions. Most companies are actively buying share back to inflate their prices.
So, almost all shares in issue provide no new funds to promote real investment in the economy. Buying them is just gambling in financial markets by any other name.
Bonds make more sense, except governments do not need them to fund their activities, as quantitative easing proved. So they too are just savings mechanisms. And whilst corporate bonds can fund investment, most fund mergers.
Cash deposits fund loan books, of course. This is why banks pay interest on deposits – they need them to fund their loan book. So that bit is toss.
Now think of that pensions contract which Spud so loves to talk about. Folk today invest to create assets which make the future richer, thereby creating the surplus which the young of the future will pay out in pensions.
Well, OK.
Pensions eat capital. You do not, cannot, gain a useful pension income purely from the dividends or interest on your savings. The income simply isn’t enough. Rates of 2 or 3% – just as an example – would mean that to gain a £20k a year pension you’d need a £650k pension pot. Median income in the country is £32k. So, in a 40 year working life you’ve got to save 50% of annual income to fund your pension – ignoring earnings within the pension for simplicity’s sake.
That doesn’t work and it most certainly doesn’t work with his “high interest” 1% bonds.
So, those young actually have to buy those assets created off the old in order for the capital to be eaten in the drooling years. Which means that the young have to do some goodly part of their savings in trade in extant assets.
Spud has entirely misunderstood that pensions contract that is. It must be possible to liberate – spend, eat – the capital in the fund to pay the pension. Therefore there must be a market in second hand instruments.
QED. And the entire collapse of his scheme. Whether it’s in bonds or shares the same is true. There must be a buyer of the instrument in order for the capital to be available.
Man’s an idiot, but then we knew that.
I didn’t save anything, just paid off the mortgage. And got a couple of private pensions and a couple of pensions from employment. What we need is to be well-informed of the options and to have the rules stay the same over our working life. And to be left alone to make our own plans. The government has no right to my savings nor to direct them because some other people haven’t planned properly or at all. Nor does Spud.
“I didn’t save anything”: if you say so.
“And got a couple of private pensions and a couple of pensions from employment.” Make up your mind.
Indeed; my investment advisor, when we set up various things a few years ago, said that what they did was to generally set things up so there wasn’t much left of the capital by the time you got to 95.
I asked “Well, what happens if I’m still in good shape at 95 and need many more years of income??”
He said “Not a problem; the bank will send someone out near your birthday….”
I *think* he was joking…
I wonder why he thinks corporate bonds can fund investment but shares don’t. They are both securities that can be used to rais capital. You give up equity if you want to go the stock route or you take the hit of having to pay the coupons from income if you choose bonds to raise capital.
Perhaps he needs to look at the way venture capital works: you give up stock to get the investment capital needed to grow the business to the next stage. I don’t believe you can grow startups with bonds unless you have some other asset to guarantee them.
I have in my time subscribed to a number of “Rights Issues” that were specifically to fund major investments that were too large to finance out of cash flow (or cash flow plus a tolerable level of borrowing). When I look at my portfolio I realise that *half* my current holdings have had “Rights Issues”. Murphy’s ignorance is appalling.
So how does Murphy think a company owner is to cash in on their investment?
Start a company. Do well. Can’t sell it. You die. Company folds?
‘ £70 billion a year goes into ISAs. There gave hardly ever been any net withdrawals. This money could be used to transform investment in sustainable social housing and the green economy.’
He’s a thief – plain and simple. He wants to steal assets. I half expect him to advocate the set up of warehouses along the lines of the ones you might see on a visit to the Polish town of Oswiecim so that property can be ‘reallocated’ to those who he believe deserve it. He is unquestionably evil,and should ideally be looking at a lengthy custodial sentence. Certainly any university employing him should have its right to issue degrees removed.
““I didn’t save anything”: if you say so.
“And got a couple of private pensions and a couple of pensions from employment.” Make up your mind.”
All true. The private pensions were seeded from stock options* and redundancy payments, so I didn’t save for them. The pensions from employment were not things I could have opted out of if I’d wanted to. The appreciation of the various houses bought with borrowed money was planned. But you have to live somewhere and paying rent makes you nothing.
* kinda not savings more of a gamble.
Either you need to live off pensions capital, as you say.
Or you do not, in which case wtf happens to the £650k pension pot when you die? Don’t say it all goes to the Courageous Spud.